3 Ofer cos close to Energean gas supply deal

The Greek owner of the Karish and Tanin fields is in talks to supply gas to Idan Ofer's OPC Energy, Israel Chemicals and Oil Refineries for 15 years.

OPC Energy, Israel Chemicals (TASE: ICL: NYSE: ICL) and Oil Refineries Ltd. (TASE:ORL), all controlled by Idan Ofer, are in the process of negotiating a natural gas supply agreement with Greek company Energean. The three companies are negotiating together in order to leverage their purchasing power to get the lowest price.

According to a prospectus published by OPC Energy for its upcoming Tel Aviv Stock Exchange (TASE) IPO, "Negotiations have been completed between the company and Energean, owner of the rights to the Karish and Tanin gas reservoirs. The amount of gas is 0.6 BCM per year for 15 years. Energean believes that gas will begin flowing from the reservoirs in 2020."

If the deals are completed, Ofer's companies will become Energean's second customer, after Dalia Energies and Or Energies, two fellow-subsidiaries that two months ago signed a contract for the supply of 23 BCM over 20 years. The deal is contingent on approval of Or Energies' power plants, which is not guaranteed.

In addition, Oil Refineries notified the TASE that it plans buying 17 BCM over 15 years and Israel Chemicals is also in talks to buy 13 BCM.

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It is believed that the price that Energean is offering its customers in Israel is a little higher than $4 per energy unit, about $0.50 less than the $4.70 per energy unit that private producers are paying for gas from the Tamar reservoir. It cannot be ruled out that Energean will sell gas at less than $4 per energy unit in the future if the quantity is large enough to justify it.

At a press conference in January launching Energean's business in Israel, company representatives said that they needed contracts for the supply of 3 BCM annually in order to develop the reservoir, which means that the existing contracts are insufficient. Market sources said that even 2 BCM annually might be enough.

The emerging agreement with OPC Energy is for the group's company's power stations at Mishor Rotem, of which the company owns 80%, and another 148-megawatt power station under construction in Hadera. The power station in Mishor Rotem has been operating since July 2013, producing 466 megawatt annually.

OPC Energy is fully owned by IC Power, which also has extensive electricity production business in Latin America. IC Power is fully owned by Kenon Holdings Ltd (TASE:KEN: NYSE: KEN-WI). OPC Power raising NIS 320 million in a private bond issue for investment institutions two months ago.

A month ago, Energean announced that it had submitted plans for developing the Karish reservoir to the Ministry of National Infrastructure, Energy and Water Resources Petroleum Commissioner. The company is trying to close financing by the end of the year, so that it can begin supplying gas in 2020 or 2021. Investment in development before the supply of gas can begin is estimated at $1.3-1.5 billion.

Energean said in response that the deal had not yet been signed, and that it was negotiating with OPC Energy and with other potential customers.